Calendar year 2008 has come and gone and most everybody I talk to in this business is glad it is over. I have recently detected renewed optimism since early in January and the momentum seems to be slow, but steady. Most of us have re-structured the expense side of the business. Unfortunately, I have seen many stores try and expense themselves into a profit. This is a slippery slope and if expense restructure is not thought through very carefully, many things can be put on the chopping block that directly contribute to generating sales and gross. One of the biggest mistakes I see over and over again are dealerships that cut items that, in the short run might seem like the right thing to do but in the long run, hurts the stores ability to produce gross.
Most financial statements have some methodology as to how they are organized. Assets are generally listed in order of cashability and Liabilities are generally listed in order of payability. In the expense section of your financial statement the expenses are generally listed in order of controllability. A good rule of thumb to keep in mind when attempting to think through the process of re-structuring you business is to work first on those items that are listed higher in order of cashability, payability or controllability.
Besides cash in bank, your most liquid asset (hopefully) are your vehicle inventories. Rather than spending more time restructuring the expense side of the business, many good operators are restructuring their assets, (inventories) to produce greater turnover. How do you do that? The process is really quite simple. Stock a greater percentage of faster moving inventory and reduce inventories that are slower movers. I know this sounds simplistic and we all want to do this. All I can tell you after having specialized in Vehicle inventory management for over 20 years now, is that it can, and is being done. You cannot do it with emotion, you cannot do it with gut feel, you cannot do it without a sound system and process that all management believes in, understands, and most importantly, implements on a daily basis.
The real question is, how do I increase my rate of turnover? The short answer is, Knowledge, Information and Implementation. One of the buzzword phrases of the 80’s was knowledge is power. In the 90’s it changed to information is power. In the new millennium, the reality is with all the knowledge and information in the world, true power is only accomplished with implementation. Without specific systems, processes and feedback coupled with accountability, true implementation simply cannot happen.
Have you ever wondered how one of your competitors always seems to be able to deliver more vehicles than you? Or how someone in your 20 group was continuously selling 1 to 1 (or more) used to new? Or how they grossed more per unit than you? Or how they were able to experience little or no wholesale pain? It’s all about the turn. We all know that the quicker turners gross more. That goes for both the new vehicle department as well as the used. This is no secret. And believe it or not, the turn is all about your inventory.
One of the secrets of success of the world’s largest retailer – Wal Mart is precise inventory management. Each location knows, without any doubt, the speed of the turn of over 15,000 individual items. They know how many they have on the shelf, how many they have in the pipeline, if the rate of turn is increasing or decreasing, their return on investment, how price effects shelf movement and many more key indicators that relate to increasing sales with a more effective inventory. If it works well, they get more, if it doesn’t, they cut back. They do pay attention to regional trends but I can assure you that different stores in different locations in the same market area have vastly different inventories. A good example is North side Chicago vs. South side Chicago. Same Regional Market, completely different demographics, completely different inventories. Focus on your store, your location, your traffic, your demographics first.
There are a number of good systems out there for today’s new and used vehicle inventories. Naturally, I would love to tout the features and benefits of mine but this is not the time or place for a commercial. The important thing for you to consider is whether or not you are really satisfied with the way your operation analyzes your sales and corresponding inventories and what your people do, on a proactive basis once they know the facts. Do you have a specific system and process that you use to make inventory decisions on a daily basis? Do you use and rely upon that system to make inventory decisions? Is gut feel being used at your store?
Below is a recent headline (January 29th 2009) pulled directly from a Dealer Newsletter I get daily.
Fundamental transformation’ in remarketing industry – Manheim 2009 Used Car Market Report
“Though 2008 was one of the most challenging years ever for the U.S. automotive industry, used vehicles remained a source of profits for those dealers who were able to value trade-ins correctly and turn inventories quickly in 2008. As national attention focused on the economy, fundamental shifts were taking hold in the remarketing industry as both wholesale consignors and buyers looked for ways to become more efficient when buying or selling, according to Manheim’s 2009 Used Car Market Report, released this week.”
Suffice it to say, there are additional profits available to those who take inventory management seriously. Do yourself a favor and learn about what you can do to improve your bottom and cover your Assets.